Technical Assistance to the People's Republic of China for Preparing The

Technical Assistance TAR: PRC 38174 Technical Assistance to the People’s Republic of China for Preparing the Western Roads Development Project August 2005 CURRENCY EQUIVALENTS (as of 14 August 2005) Currency Unit – yuan (CNY) CNY1.00 = $0.1233 $1.00 = CNY8.108 ABBREVIATIONS ADB – Asian Development Bank EA – executing agency EIA – environmental impact assessment EIRR – economic internal rate of return FIRR – financial internal rate of return FYP – five-year plan GDP – gross domestic product GPCD – Gansu Provincial Communications Department IPSA – initial poverty and social assessment O&M – operation and maintenance PRC – People’s Republic of China REA – rapid environmental assessment RP – resettlement plan SPCD – Sichuan Provincial Communications Department TA – technical assistance VOC – vehicle operating cost TECHNICAL ASSISTANCE CLASSIFICATION Targeting Classification – General intervention Sector – Transport and communications Subsector – Roads and highways Theme – Sustainable economic growth Subthemes – Promoting economic efficiency and enabling markets, and Fostering physical infrastructure development NOTE In this report, “$” refers to US dollars. This report was prepared by the project team comprising M. Ojiro (team leader), S. Ferguson, S. Noda, and X. Yang. I. INTRODUCTION 1. During the 2005 Country Programming Mission for the People's Republic of China (PRC), the Government confirmed its request for technical assistance (TA) to prepare integrated roads development projects in Gansu Province and Sichuan Province.1 The Asian Development Bank (ADB) Fact-Finding Mission visited the PRC in June 2005; traveled to the project areas; carried out an initial poverty and social assessment (IPSA) and rapid environmental assessment (REA); and discussed economic, social development, and project-specific issues with officials of the central and local governments. This report is based on the understanding reached with the Government on the objectives, scope, costs, terms of reference, and implementation arrangements for the TA, and the Mission's observations in the field. A design and monitoring framework, outlining the impact, outcome, outputs, and activities, is in Appendix 1. II. ISSUES 2. PRC’s economic growth over the last decade has substantially increased the demand for transport services. The economy’s changing structure and increasing diversification have altered the pattern of transport demand. The demand for road transport has outpaced that of other transport modes. There is a need to rapidly move goods and passengers by roads, which are more flexible and responsive than other modes to the needs of a market economy. The shift in transport demand also reflects the loosening of anticompetitive restrictions in the road transport industry itself. Between 1990 and 2004, road traffic grew by 9.0% yearly for passenger traffic, reaching 876.5 billion passenger─kilometers (km); and by 6.0% yearly for freight, reaching 759.7 billion ton─km. In 2004, roads accounted for 53.7% of the country’s total passenger traffic and 11.4% of the total freight traffic. With the country’s rapid economic growth, low vehicle ownership rates, and large investment in automotive manufacturing, rapid expansion in the vehicle fleet will continue in the coming years. PRC’s road network was 1.86 million km in 2004, an increase of 46,000 km from 2003. Of this, the expressway length increased from 29,745 km to 34,200 km during the same period.2 However, the road network is still underdeveloped in quality and extent. High-standard roads3 account for only about 14% of the total road network; the remaining 86% (class III road and below) are medium- to low-grade paved and gravel roads. With only 1,431 km of roads per million inhabitants and 19.4 km per 100 km2 in 2004, the density of PRC's road network is low, resulting in serious transport capacity constraints and bottlenecks. 3. The road network in Gansu Province is underdeveloped in both quality and extent. In 2004, Gansu’s road network accounted for 2.2% of the country’s total, with 40,751 km. Of this total, 31,614 km comprised: 686 km of expressways, 143 km of class I roads, 4,826 km of class II roads, and 25,961 km of class III–IV roads. Unclassified roads covered 9,137 km. The road density in Gansu was 9.0 km per 100 km2, lower than the national average; and the proportion of road class II and above is significantly lower than the national average. In Sichuan Province, the road network also remains underdeveloped. Sichuan’s road network accounted for 6.1% of the country’s total, with 113,043 km. Of this, 76,401 km comprised: 1,758 km of expressways, 1,496 km of class I roads, 9,633 km of class II roads, and 63,514 km of class III–IV roads. Unclassified roads covered 36,642 km. The road density in Sichuan was 23.3 km per 100 km2, slightly higher than the national average, but the proportion of road class II and above is significantly lower than the national average. 1 The TA first appeared in ADB Business Opportunities (internet edition) on 5 April 2005. 2 The PRC has the world’s second longest expressway system after the United States. 3 This is defined as roads above class II that are generally capable of accommodating 3,000–7,500 vehicles per day in medium-sized truck equivalent within the expected design life. 2 4. The impact of road investments on poverty reduction is supported by the results of studies and evaluations of several completed road projects financed by ADB4 and the World Bank. 5 Well-integrated road development helps ensure that the benefits derived from the expressway filter down to the poor. Benefits from transport cost savings and time savings, along with an increase in incomes, will be passed on through the transport chain to townships and villages. The results affirm the relevance of ADB’s strategy in the PRC road sector. A case study in Shaanxi Province found that improved roads correlated with poverty reduction, and that (i) 3.2 poor people are lifted out of poverty for every CNY10,000 invested in roads; and (ii) for every 1% increase in kilometer of road per capita, household consumption increases by 0.08%.6 5. While the national trunk highway system is being developed, accessibility in most of PRC’s rural area is still low. Currently, 145 townships and 50,124 villages, most of which are in the western region, have no access to all-weather roads. Many townships and villages still depend on earth tracks that are not suitable for motorized traffic and become impassable during rainy season. Even where all-weather roads have been built in the past, the standard of rural roads is low, maintenance is poor, and many roads are in need of rehabilitation. In view of the need to improve rural accessibility, the central Government completed 71,000 km of rural roads at the cost of CNY60.9 billion, supported by the local governments that constructed 68,000 km, costing CNY57.6 billion in 2004. The Government plans to invest CNY100 billion in developing rural roads during the 11th Five-Year Plan (2006–2010). By 2010, all villages in the eastern region will be linked with paved roads. The same targets will be applied to 80% of villages in the central region and 90% of towns in the western region. The Government’s commitment to reducing poverty through transport infrastructure investment is reflected in the poverty partnership agreement between the Government and ADB.7 6. Gansu Province is one of PRC’s five northwestern provinces. Remote and isolated, with harsh natural conditions, it is one of the least developed provinces. Its key problem is poverty: the per capita gross domestic product (GDP) in 2004 was CNY5,898, only 57% of the national average of CNY10,502. Per capita rural income was CNY1,852, or 63% of the national average of CNY2,963. Despite considerable investments, the road network is still inadequate and does not provide efficient transport access to markets and social services, such as education and health. The number of poor rural people below the provincial poverty line of CNY882 is 261,500 (33.6%) in the project area. One of the reasons for the high poverty incidence is slow economic growth, due partly to inadequate infrastructure, particularly poor local road conditions. Despite considerable investments, the road network is still inadequate, and does not provide efficient transport access to many parts of the province. 7. Sichuan Province is situated in southwestern PRC, with mountains on all sides. Its isolation has been reduced by improved navigation on the Yangtze River, by railway construction, and by the construction of several major highways. The majority of its population are concentrated on the flat, fertile plain in the east and central part, but it has several poverty- stricken areas on its mountainous periphery. Despite rapid development in recent years, 4 In Liaoning and Yunnan provinces, construction of expressways, complemented by upgrading local roads, was associated with a significant increase in rural incomes in the project area. This is reported in ADB. 2000. Project Completion Report on the Liaoning Expressway Project in the People’s Republic of China. Manila; and ADB. 2001. Project Completion Report on the Yunnan Expressway Project in the People’s Republic of China. Manila. 5 Hajj, Hatim, and V. Setty Pendakure. 2000. Roads Improvement for Poverty Alleviation in China. Working Paper No. 1. Washington, DC: World Bank, Transport Sector Unit. East Asia and Pacific Region. 6 ADB. 2000. Technical Assistance for Assessing the Impact of Transport and Energy Infrastructure on Poverty Reduction. Manila. 7 Available: http://www.adb.org/Documents/Poverty/pa_prc.pdf. 3 Sichuan ranks seventh lowest of all provinces in per capita GDP: CNY7,514 in 2004, or 72% of the national average.

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